Loan features explained

If you’re wondering if you really need any of the features listed on loan product descriptions, the answer is, you might.

Generally home loan features are about cost, convenience and flexibility. So, depending on your plans and your lifestyle, some of them can really save you a lot of money and hassle.

Interest only repayments

This feature allows you to pay off only the interest part of the loan. It won’t save you money because you won’t reduce your principal. In fact, you’ll probably pay a bit more interest in the long term but it will reduce your regular repayments for a period of time.

This can be handy during the early years of your loan because the reduced repayments can make the adjustment to a mortgage a little easier.

Investors also tend to like this type of loan, because you only need to pay off the principal when the property is sold—and hopefully achieved some capital gain.

Remember you will need to pay off the original amount you borrowed by the end of the loan term.

Weekly or fortnightly repayments

Most loans repayments are due monthly but some lenders allow you to pay them fortnightly or weekly. This can save you quite a bit in the long run. That’s because interest on home loans is calculated daily, so the more often you pay off a bit of the principal, the less interest you’ll pay over the long term.

To see how this can save you thousands take a look at our repayment calculator.

Extra repayments

Some loans allow you to make higher regular repayments or pay off a lump sum chunk when and if you can. Either type of extra repayment will help you pay your loan off sooner and save thousands of dollars in interest in the long term.

It’s a very handy feature but watch out for the extra fees that some lenders charge for it.

Redraws

A redraw facility allows you to re-borrow any extra repayments you’ve made. It means you can reduce your interest repayments when you have some extra money, but get that cash back when you need it. There can be additional fees for using this feature.

Offset account

This is a bank account connected to a loan. The amount of cash in the account is taken off the outstanding loan balance—or the principal you owe. This reduces the amount that your interest repayments are calculated on—the more money in the account the less you’ll pay.

Look out for the extra charges that can come with this feature.

Direct Debit

A direct debit feature means your lender will automatically draw your repayments from a nominated account. It can make paying your mortgage a whole lot simpler. As long as there is enough cash in the nominated account, you can be sure you’ll never miss a repayment.

Portability

Portability means you can take the same home loan with you if you sell up and buy somewhere else to live. This can save a load of fees and hassle when you move house but there can also be a charge when you use this feature.

Continue to information about the questions you should ask before signing a loan contract.